On December 3, 2024, the U.S. District Court for the Eastern District of Texas, Sherman Division, issued an Order granting a preliminary injunction barring the federal government from enforcing the Corporate Transparency Act (CTA) and its reporting requirements. In doing so, the Court ruled that Reporting Companies do not need to comply with the CTA’s January 1, 2025 initial Beneficial Ownership Information Report (BOIR) filing deadline.
For reference, the case is styled: Texas Top Cop Shop, Inc. v. Garland, No. 4:24-CV-478 (E.D. Tex.).
For context, the CTA was enacted by Congress in 2021 as part of the National Defense Authorization Act and requires that most corporate entities created by filing documentation with a secretary of state or similar office to file a BOIR. The BOIR lists the Beneficial Owners of the corporate entity and provides their personal information, including residential address and identification. This Act applies to community associations.
As a basis for the preliminary injunction, the Court found that the CTA and its reporting requirements were outside of Congress’s enumerated powers. Traditionally, oversight of domestic corporate entities has been an area left to the authority of the states. While the government argued that the CTA was necessary to limit international crime, the Court did not find that this argument was sufficient to overcome the preliminary injunction.
Importantly, this Order did not find that the CTA was unconstitutional; rather, it found that the Plaintiffs in the case had a high likelihood of success on the merits in establishing that the CTA is unconstitutional facially based on its infringement on powers granted to the states through the Tenth Amendment. The Tenth Amendment provides that powers that are not expressly granted to the federal government are reserved to the states or the people. Per the Court, as the power to regulate domestic corporate entities has not been granted to the federal government, it is within the exclusive control of the states.
So, what does this mean for your community association or corporation? This is not the first challenge to the constitutionality of the CTA. However, it is the first legal case where a Judge granted an injunction and seems poised to hold the CTA as unconstitutional. Even if this occurs, the ruling will likely be appealed and may end up being decided by the Supreme Court. Additionally, FinCEN recently granted an extension until July 1, 2025, for existing Reporting Companies to file their Initial BOIR if their principal place of business is in an area approved for individual or public assistance by FEMA and an extension from the IRS.
Accordingly, existing entities with their principal place of business in Florida already had an extension to file their Initial BOIR through July 1, 2025.
Again, it is important to note that this Order simply granted a preliminary injunction – the Court has not yet ruled on whether the CTA is ultimately constitutional or enforceable. Thus, it is possible that this decision will be appealed or that the CTA will eventually be upheld as constitutional. In either event, existing companies could be given limited time after such a ruling to ultimately comply with the CTA’s requirements. Thus, it is important that, if entities decide to delay filing their Initial BOIR, they remain aware of the current legal status of the CTA and any changes to such status.
Because of the extension provided to Reporting Companies in Florida and this preliminary injunction, Florida community associations and corporations may want to hold off filing their initial BOIR for a few months. However, please make sure to consult with your legal professionals prior to July 1, 2025, to inquire as to whether the injunction is still in effect or if you need to file the initial BOIR at that time.
Should you have any questions regarding this ruling or the CTA, please contact the Eisinger Law office at info@eisingerlaw.com or (954) 894-8000.
Visit: https://www.eisingerlaw.com/